Hanmi Financial Corporation — 2023 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter report. Hanmi Financial is the holding company of Hanmi Bank, a community bank serving Korean-American and other multi-ethnic communities across nine states. Its business is primarily commercial and real-estate lending, deposit-taking, securities investment, and SBA lending.
Financial results and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $221.3 million | $237.6 million |
| Net income | $80.0 million | $101.4 million |
| Diluted earnings per share | $2.62 | $3.32 |
| Return on average assets / equity | 1.08% / 10.70% | 1.44% / 14.83% |
| Net interest margin (taxable-equivalent) | 3.08% | 3.50% |
| Net cash provided by operating activities | $107.8 million | $147.3 million |
- Total assets were $7.57 billion; loans receivable before allowance were $6.18 billion, up 3.6%, and deposits were $6.28 billion, up 1.8%.
- Cash and due from banks ended at $302.3 million, down from $352.4 million. Investing activities used $210.0 million and financing activities provided $52.1 million; cash decreased $50.1 million during the year.
- Interest-bearing deposit costs rose sharply: the average rate increased to 3.35% from 0.79%. Interest expense rose to $148.1 million from $36.2 million, outpacing the increase in interest income.
- Noninterest expense was $136.5 million, up 4.8%; noninterest income was $34.2 million, essentially unchanged. The effective tax rate was 30.1%, versus 27.9%.
- Year-end borrowings were $325.0 million, primarily FHLB advances, and subordinated debentures were $130.0 million. Total stockholders’ equity was $701.9 million.
- Regulatory capital ratios remained above applicable well-capitalized thresholds: the Bank’s total risk-based capital ratio was 14.27%, CET1 was 13.26%, and Tier 1 leverage was 11.32%.
Material changes versus 2022
- Net income fell 21.1%, reflecting a $16.4 million decline in net interest income, $6.2 million higher noninterest expense, and $3.5 million higher credit loss expense, partly offset by lower income tax expense.
- Loan growth was slower: loans increased $215.3 million, compared with an $816.6 million increase in 2022. Loan production of $1.29 billion was offset by $1.07 billion of payoffs and prepayments.
- Deposit mix shifted toward higher-cost funding. Noninterest-bearing demand deposits fell $536.0 million, while time deposits increased $498.7 million and money-market and savings deposits rose $178.0 million. The year-end loan-to-deposit ratio was 98.4%, up from 96.7%.
- Credit loss expense was $4.3 million, compared with $0.8 million in 2022. Net loan charge-offs increased to $7.0 million from $1.4 million; the allowance for credit losses ended at $69.5 million, or 1.12% of loans, down from $71.5 million, or 1.20%.
- Available-for-sale securities had a fair value of $865.7 million. Accumulated other comprehensive loss improved to $71.9 million from $89.0 million, largely reflecting securities valuation changes, but remained a material reduction to equity.
Outlook, commentary, risks and unusual items
- The filing provides no quantitative earnings or growth guidance. Management says it emphasizes capital protection and stable earnings, and believes the Bank had adequate liquidity to meet current obligations.
- Liquidity and funding warrant attention: uninsured deposits totaled $2.52 billion, including $1.84 billion of non-time deposits. The Bank reported $1.09 billion of remaining FHLB borrowing capacity and $23.2 million available through the Federal Reserve Discount Window and BTFP at year-end; the filing states the BTFP was available until March 11, 2024.
- Credit exposure is concentrated: commercial real estate and commercial and industrial loans represented 75.0% of loans. Lessors of non-residential buildings accounted for 28.2% of loans and hospitality borrowers 12.0%. Management also identifies Southern California real estate, interest-rate changes, deposit competition, recession, inflation, cybersecurity and operational disruption as material risks.
- Nonaccrual loans rose to $15.5 million from $9.8 million; nonperforming assets were $15.6 million, or 0.21% of assets. The filing reports no loans 90 days or more past due and still accruing, and no loans modified for borrowers experiencing financial difficulty during 2023.
- Notable 2023 items included a $4.0 million gain on a branch building sale-leaseback, a $1.9 million legal settlement, and a $1.9 million realized loss on securities sold during a portfolio realignment.
- The company reported no legal proceedings expected to have a material adverse effect, effective disclosure and financial-reporting controls, and an unqualified audit opinion. The auditor identified the loan-loss allowance model as a critical audit matter.
Important facts for investors to verify
- Whether deposit retention and pricing, especially the decline in noninterest-bearing deposits, continue to pressure funding costs and net interest margin.
- Whether the high loan-to-deposit ratio and uninsured-deposit exposure remain manageable, and how available borrowing capacity changes after the BTFP’s stated end date.
- Performance and collateral values in commercial real estate, particularly non-residential building lessors and hospitality, as well as the trend in criticized, nonaccrual and charged-off loans.
- Whether credit-loss reserves remain adequate despite higher charge-offs and nonaccrual loans, including the assumptions and judgments highlighted in the critical audit matter.
- How securities fair values and accumulated other comprehensive losses affect equity and liquidity if interest rates or funding conditions change.
- Whether reported earnings and dividends are sustainable without the year’s unusual settlement and sale-leaseback gains, and given the substantial rise in deposit interest expense.